Tags: Real | Budget | Deficit | Becomes | Possible

A Real Budget Deficit Becomes Possible

Thursday, 20 September 2001 12:00 AM

Just weeks ago, Congress was locked in a partisan debate over how to avoid spending a $153 billion surplus in the federal budget. The concern then was that the $153 billion should not be used to pay for ad hoc government programs, because those surplus funds had been raised by Social Security payments.

But the terrorist attacks are further shaking an already flagging economy, and will drastically reduce the amount of money the government will take in through taxes over the next few years. Meanwhile, the costs of bailing out ailing industry, cleaning up New York, and waging war could be astronomical, budget experts said.

As a result, budget experts said the government in the next few years could certainly go from running a historically big surplus to a budget deficit for the first time since 1997.

"Sure, we could end up in a deficit situation, both with the economy and with the war President [George] Bush is talking about," David Keating, executive director of the Club for Growth, said.

Because of President Bush's tax cut and a slowing economy, the Congressional Budget Office in August reduced the estimated size of the surplus from $275 billion down to the current $153 billion. And both parties reiterated their pledges not to use that money raised by workers' Social Security payments.

But things have changed.

President Bush had agreed with Congress not to use that money for government spending - unless the country faced recession, war or some other emergency.

"We've had all three, it seems like to me," Bush said Thursday. "And I'm going to work with Congress to send a clear message to America, American workers, American business people, that this government will respond to this emergency."

Bush said the government must spend, "enough to get America going again, to be able to endure this emergency."

Lawmakers in Congress agree the government must spend money to respond to the attacks, but worry that a possible government deficit on the horizon could have a long-term negative impact on the economy by increasing interest rates.

"Once we can get through this and see some daylight, then I think we've got to start talking about where we are headed in the long haul with surpluses and/or deficits and the effect," House Minority Leader Richard Gephardt, D-Mo., said. "There is a worry in the financial community that long-term interest rates are starting to go up because there's some sense that we are going to be in a bad budgetary situation out in the future, and that's something we've got to address."

Since the attacks last week, Congress has already passed a $40 billion emergency spending bill to pay for immediate clean up efforts. Lawmakers are also quickly shepherding an airline industry bailout bill through Congress worth an estimated $17 billion. Lawmakers on both sides of the aisle have said the costs of waging war are unknown - but could of course be astronomical.

"It depends on whether we have a recession and how deep it is," Center on Budget and Policy Priorities Senior Fellow Richard Kogan said. "But (a deficit) is not beyond the realm of possibility."

Budget experts agreed that a modest budget deficit might not necessarily be bad. After all, while the government has had a budget surplus since 1997, the last one was in 1969. The government reached the highest deficit, $3.6 trillion, in 1990.

But those experts also said it might undermine the government's ability to plan ahead, particularly to pay for huge Social Security payments as the Baby Boom generation retires. That was, in part, why Congress just weeks ago was trying to set that money aside.

Copyright 2001 by United Press International. All rights reserved.

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Just weeks ago, Congress was locked in a partisan debate over how to avoid spending a $153 billion surplus in the federal budget. The concern then was that the $153 billion should not be used to pay for ad hoc government programs, because those surplus funds had been raised...
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2001-00-20
Thursday, 20 September 2001 12:00 AM
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